The Supreme Court of India ruled on a case involving M/s Tata Steel Limited and the Union of India, concerning a Show Cause Notice (SCN) issued for alleged tax discrepancies for the fiscal years 2018-19 to 2020-21. The SCN, based on audit objections, alleged an Input Tax Credit (ITC) mismatch and short payment of tax. Initially, the Department issued proceedings and later an SCN under Section 74 of the CGST Act. However, the SCN was placed in the ‘call book’ while the Department contested the audit objection with the Public Accounts Committee.
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Tata Steel challenged the proceedings, arguing that the limitation under Section 73 had expired and that the SCN lacked specific allegations or foundational facts necessary for invoking Section 74. The issue was whether the Department could extend the five-year limitation under Section 74 merely by alleging suppression without establishing foundational facts.
The Supreme Court observed that proceedings under Sections 73/74 require the satisfaction of the Proper Officer, particularly for Section 74, which necessitates evidence of fraud, wilful misrepresentation, or suppression. The Court found that the Department’s lack of satisfaction was evident from its actions and the SCN's lack of foundational facts. It emphasized that statutory expressions like “fraud” or “suppression” cannot be used mechanically to justify extended limitations. Consequently, the SCN and the Order-in-Original were set aside, but the Department was allowed to initiate new Section 74 proceedings with proper factual basis by February 2027.
Order date - 25 August 2026
Parties: M/s Tata Steel Limited Vs Union of India through the Secretary, Ministry of Finance & Others
Facts -
- M/s Tata Steel Limited faced a Show Cause Notice (SCN) for FY 2018-19 to 2020-21 based on audit objections concerning ITC mismatch and alleged short payment of tax.
- The Department initially issued proceedings on 27.05.2024, sought supporting documents and subsequently issued the SCN dated 13.06.2025 under Section 74 of the CGST Act.
- The SCN was later kept in the ‘call book’, while the Department contested the audit objection before the Public Accounts Committee. A fresh notice was thereafter issued proposing a protective demand.
- Tata Steel challenged the proceedings, contending that the Section 73 limitation had expired and the SCN contained no specific allegation or factual foundation establishing fraud, wilful misrepresentation or suppression necessary for Section 74.
Issue -
- Whether the Department could invoke the extended five-year limitation under Section 74 of the CGST Act merely by alleging suppression, without establishing foundational facts, and sustain the SCN issued after the applicable limitation period.
Order -
- The Supreme Court observed that proceedings under Sections 73/74 can be initiated only upon the satisfaction of the Proper Officer; for Section 74, the Officer must be satisfied that fraud, wilful misrepresentation or suppression led to the tax shortfall or ITC mismatch.
- The Court noted that the Department's decision to place the audit objection before the Public Accounts Committee itself indicated an absence of satisfaction regarding the alleged mismatch, short payment or suppression. The SCN also lacked foundational facts supporting the allegation.
- The Court emphasised that extended limitation cannot be invoked by mechanically repeating statutory expressions such as “fraud”, “wilful misrepresentation” or “suppression”. The foundational facts leading to such an inference must be evident from the SCN itself.
- Since the SCN did not disclose facts showing any deliberate device to evade tax or avail excess ITC, it could not be sustained. The SCN and consequential Order-in-Original dated 26.12.2025 were set aside, while liberty was granted to initiate appropriate Section 74 proceedings with proper factual foundation before 28.02.2027.
